This guide covers what Management Reserve is, where it fits into the overall project structure, estimating MR and using it. It also covers the differences between Management Reserve and funding contingency, something that often gets confused in organizations.
This guide is something you can use to clear up any misconceptions regarding Management Reserve as well as offering great clarity in its use within an EVMS.
A simple approach to contingency drawdown
Presented by Ben Fry
Monday 10th October 2016
APM North West branch and Risk SIG conference
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Risk Identification Process PowerPoint Presentation SlidesSlideTeam
Showcase planned methods of hazard analysis with our content ready Risk Identification Process PowerPoint Presentation Slides. The hazard awareness process PowerPoint complete deck has forty-five PPT slides like risk management introduction, types of risks, risk categories, stakeholder’s management and engagement, risk appetite and tolerance, procedure, risk management plan, risk identification, risk register, risk assessment, risk analysis, risk response plan, risk response matrix, risk control matrix, risk items tracking, tools and practices, risk impact & profitability analysis, risk mitigations strategies, plans, qualitative and quantitative risk analysis, etc. All PowerPoint templates of risk assessment steps presentation are fully editable, edit them as per your specific project needs. The same risk management presentation deck can also be used to portray topics such as risk analysis, risk appetite, business continuity, risk-based auditing, hazard analysis, risk analysis, risk assessment and so on. Download this professionally designed risk management plan presentation deck to mitigate the risk. Our Risk Identification Process PowerPoint Presentation Slides are magnetic in nature. They will draw the right people to your cause.
A simple approach to contingency drawdown
Presented by Ben Fry
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
Risk Identification Process PowerPoint Presentation SlidesSlideTeam
Showcase planned methods of hazard analysis with our content ready Risk Identification Process PowerPoint Presentation Slides. The hazard awareness process PowerPoint complete deck has forty-five PPT slides like risk management introduction, types of risks, risk categories, stakeholder’s management and engagement, risk appetite and tolerance, procedure, risk management plan, risk identification, risk register, risk assessment, risk analysis, risk response plan, risk response matrix, risk control matrix, risk items tracking, tools and practices, risk impact & profitability analysis, risk mitigations strategies, plans, qualitative and quantitative risk analysis, etc. All PowerPoint templates of risk assessment steps presentation are fully editable, edit them as per your specific project needs. The same risk management presentation deck can also be used to portray topics such as risk analysis, risk appetite, business continuity, risk-based auditing, hazard analysis, risk analysis, risk assessment and so on. Download this professionally designed risk management plan presentation deck to mitigate the risk. Our Risk Identification Process PowerPoint Presentation Slides are magnetic in nature. They will draw the right people to your cause.
Building business continuity through risk management
Presented by Kimberley Hart
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
This presentation talks about how risks in a project are analyzed and quantified. The presentation also discusses benefits of quantification of risks and the various tools at our disposal to manage risks effectively through quantification.
A plan to mitigate or eliminate risk is handled well with the use of Risk Mitigation Strategy PowerPoint Presentation Slides. All the steps planned well in advance for enhancing the opportunities and reducing threats needs a professionally crafted PPT layout. Each and every fundamental area of concern and disaster recovery plan needs time to compile the data in a sequential presentation graphic thus making life much more easy and manageable. Not only there is financial and strategic impact of risk but also the execution of plans becomes difficult therefore it’s always important to keep a record of market trends in PowerPoint template. Operations can be made more effective with classic risk management presentation slides as it addresses important and functional areas like avoiding, reducing, transferring and retaining or accepting. Contingent risks can also be avoided and still if they happen can be addressed with ease as all the data and growth trend is just a click away on the PPT slide Our Risk Mitigation Strategy Powerpoint Presentation Slides are ideal for any job. It even caters for impulsive ideas. https://bit.ly/3CGDNh1
Risk analysis for project decision-making
Presented by Keith Gray
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
The risk management for projects attempts to recognize and manage potential and unforeseen trouble spots which may occur when the project is implemented. It identifies as many risk events as possible. Further classification of risk factors help in resolving it either by mitigation, avoiding, transferring or retaining .Methods of handling risk.
Effective Business Continuity Plan Powerpoint Presentation SlidesSlideTeam
Showcase proactive plan to avoid risk with our attention-grabbing Effective Business Continuity Plan PowerPoint Presentation Slides. The visually appealing risk assessment process PowerPoint complete deck contains editable templates with relevant content such as management oversight, risk management, business impact analysis, business continuity policy framework, recommend mitigations to name a few. The easy-to-use business continuity plan PPT slides also assist users to create an effective plan so that businesses can continue operating even during a time of emergency or disaster. Take advantage of mitigation planning PPT slideshow to create a system of prevention & recovery from possible risks. Furthermore, the emergency management PowerPoint templates allow you to present various topics like crisis management, disaster risk reduction, scenario planning, natural hazards control, business continuity auditing, and many more. Utilize our content-ready business continuity & resiliency planning PPT slides for crisis management & planning. Get access to this self-explanatory disaster recovery PowerPoint presentation deck now. https://bit.ly/3u4ql1O
Document Management in the Mobile WorldHelpSystems
Does your company rely on mobile devices to perform key business operations? If you’d like to be able to find and import essential documents, forms, signatures, and more from mobile devices, then view this slideshow to learn how you can dramatically streamline your document management.
Watch the on-demand webinar on HelpSystems.com.
http://www.helpsystems.com/rjs/events/recorded-webinars/document-management-mobile
Building business continuity through risk management
Presented by Kimberley Hart
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
This presentation talks about how risks in a project are analyzed and quantified. The presentation also discusses benefits of quantification of risks and the various tools at our disposal to manage risks effectively through quantification.
A plan to mitigate or eliminate risk is handled well with the use of Risk Mitigation Strategy PowerPoint Presentation Slides. All the steps planned well in advance for enhancing the opportunities and reducing threats needs a professionally crafted PPT layout. Each and every fundamental area of concern and disaster recovery plan needs time to compile the data in a sequential presentation graphic thus making life much more easy and manageable. Not only there is financial and strategic impact of risk but also the execution of plans becomes difficult therefore it’s always important to keep a record of market trends in PowerPoint template. Operations can be made more effective with classic risk management presentation slides as it addresses important and functional areas like avoiding, reducing, transferring and retaining or accepting. Contingent risks can also be avoided and still if they happen can be addressed with ease as all the data and growth trend is just a click away on the PPT slide Our Risk Mitigation Strategy Powerpoint Presentation Slides are ideal for any job. It even caters for impulsive ideas. https://bit.ly/3CGDNh1
Risk analysis for project decision-making
Presented by Keith Gray
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
The risk management for projects attempts to recognize and manage potential and unforeseen trouble spots which may occur when the project is implemented. It identifies as many risk events as possible. Further classification of risk factors help in resolving it either by mitigation, avoiding, transferring or retaining .Methods of handling risk.
Effective Business Continuity Plan Powerpoint Presentation SlidesSlideTeam
Showcase proactive plan to avoid risk with our attention-grabbing Effective Business Continuity Plan PowerPoint Presentation Slides. The visually appealing risk assessment process PowerPoint complete deck contains editable templates with relevant content such as management oversight, risk management, business impact analysis, business continuity policy framework, recommend mitigations to name a few. The easy-to-use business continuity plan PPT slides also assist users to create an effective plan so that businesses can continue operating even during a time of emergency or disaster. Take advantage of mitigation planning PPT slideshow to create a system of prevention & recovery from possible risks. Furthermore, the emergency management PowerPoint templates allow you to present various topics like crisis management, disaster risk reduction, scenario planning, natural hazards control, business continuity auditing, and many more. Utilize our content-ready business continuity & resiliency planning PPT slides for crisis management & planning. Get access to this self-explanatory disaster recovery PowerPoint presentation deck now. https://bit.ly/3u4ql1O
Document Management in the Mobile WorldHelpSystems
Does your company rely on mobile devices to perform key business operations? If you’d like to be able to find and import essential documents, forms, signatures, and more from mobile devices, then view this slideshow to learn how you can dramatically streamline your document management.
Watch the on-demand webinar on HelpSystems.com.
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Le Bazar des Tendances n°2 (Août 2014)
Le Bazar des Tendances, magazine mensuel, prêt-à-porter, Déco, Beauté, Musique, Expositions, Horoscopes… . Tous les styles, toutes les tendances, tous les meilleurs plans et conseils, le tout dans un magazine.
Six ways for car park owners and operators can add value to their car park and maximise the performance, and ultimately the revenue, of this valuable property asset.
Management of risk affects the success and financial viability of a project. Internal risks, which are generally within the control of a construction organisation, are cost and schedule overrun. External risks include market conditions, government policy and natural disasters.
This article describes the management of internal risks through integrated schedule and cost analysis as these are areas that can be managed effectively by a construction organisation with minimal set up cost.
The types of project referred to in this article can either be design-and-build or build-only projects. Other forms of procurement such as Build-Operate-Transfer (BOT) will attract different risks which are not considered herein.
This modelling guide focuses on advance payments and retentions in construction contracts – this financial modelling approach can also be applied to other contracts where similar mechanisms are applied.
When contractually required, DOD acquisition contractors are obligated to submit IPMR's electronically IAW DID 81861. This data is necessary but not sufficient for successfully managing a program. This presentation is the overview of the Essential Views needed for that success
DIRECTED READING THREE PERCEPTIONS OF PROJECT COST D.H. Hamburg.docxduketjoy27252
DIRECTED READING: THREE PERCEPTIONS OF PROJECT COST*: D.H. Hamburger
Project cost seems to be a relatively simple expression, but “cost” is more than a four letter word. Different elements of the organization perceive cost differently, as the timing ofprojectcost identification affects their particular organizational function. The project manager charged with on-time, on-cost, on-spec execution of a project views the “on cost” component of his responsibility as a requirement to stay within the allocated budget, while satisfying a given setof specified conditions (scope of work), within a required time frame (schedule). To mostproject managers this simply means a commitment to project funds in 328329accordance with a prescribed plan (time-based budget). Others in the organization are less concerned with the commitment of funds. The accounting department addresses expense recognition related to aproject or an organizational profit and loss statement. The accountant’s ultimate goal is reporting profitability, while positively influencing the firm’s tax liability. The comptroller (finance department) is primarily concerned with the organization’s cash flow. It is that person’s responsibility to provide the funds for paying the bills, and putting the unused or available money to work for the company.
To be an effective project manager, one must understand each cost, and also realize that the timing of cost identification can affect both project and corporate financial performance. Theproject manager must be aware of the different cost perceptions and the manner in which they are reported. With this knowledge, the project manager can control more than theproject’s cost of goods sold (a function often viewed as the project manager’s sole financial responsibility). The project manager can also influence the timing of cost to improve cash flow and the cost of financing the work, in addition to affecting revenue and expense reporting in the P&L statement.
Three Perceptions of Cost
To understand the three perceptionsof cost—commitments, expenses, and cash flow—consider the purchase of a major project component. Assume that a $120,000 compressor with delivery quoted at six months was purchased. Figure 1 depicts the order execution cycle. At time 0 an order is placed. Six months later the vendor makes two shipments, a large box containing the compressor and a small envelope containing an invoice. The received invoice is processed immediately, but payment is usually delayed to comply with corporate payment policy (30, 60, 90, or more days may pass before a check is actually mailed to the vendor). In this example, payment was made 60 days after receipt of the invoice or 8 months after the order for the compressor was given to the vendor.
Figure 1: Three perceptions of project cost.
Commitments—The Project Manager’s Concern
Placement of the purchase order represents a commitment to pay the vendor $120,000 following satisfactory delivery of the compressor..
INFORMATION SYTEMS 3
Part-3: Mr. and Mrs. Rodgers House (House construction)
BUDGET AND RISK MANAGEMENT
1.0.
Overall Project Budget
A technique called Earned Value Management (EVM) compares project performance to the project baseline (Xu et al., 2018). All project managers pursuing Project Management Professional (PMP) certification learn and memorize the earned value calculations. Their application in real life is patchy, though. According to Insight, EVM is among the "critical few" best areas of practice for keeping track of a project's progress from both a schedule and cost standpoint (Vasyunina, 2017). The binary way of thinking about projects is widespread:
· On time versus late
· Over budget versus under budget.
On the project cost, both performance evaluation elements have a significant impact (Chang et al., 2022). If our costs are lower yet we are running late, EVM provides excellent facts of the matter.
Determining Earned Value
Computing EV involves:
· The sum of the up-to-date project budget, known as the planned value (PV)
· Current costs are identical to Actual Cost (AC).
· The project budget is multiplied by the proportion of execution to determine earned value (EV).
Now that we have these numbers, we can start making some computations of:
Schedule Performance Index (SPI) = EV/PV
SPI contrasts actual and anticipated progress. Whenever the SPI value had been than 1.0, fewer tasks were completed than expected. SPI > 1.0 denotes the completion of more work than anticipated.
Determining the CPI:
CPI= AC÷EV
The CPI evaluates the worth of finished work in relation to its true cost. Its score of 1.0 denotes high costs than anticipated. A CPI of greater than one shows that costs remained lower than expected.
For the SPI and CPI, >1 is favorable while 1 is unfavorable.
Remember that;
Subtracting instead of dividing allows you to rapidly determine the difference between the project budget and the timeline. Schedule variance (SV) equals EV-PV, whereas cost variance = EV-AC. You can easily execute the subtraction operation in your head, and in this case, >0 is favorable to 0 in this situation.
Except in the case of SPI or CPI, deviation is reliant on the project's scope. Therefore, we cannot compare it across construction project or across time effectively, as the budget might have changed.
Calculating the Project EAC:
CPI = EAC ÷ Overall Budget
EAC represents the prediction aggregate cost.
In summary:
· Project is halfway to its completion,
· PV = $55,000
· AC= $45,000
The calculations are as follows:
EV=100,000 ×1/2
=$50,000
SV =EV-PV
Where EV=50,000 and PV=55,000
Therefore, SP= 50,000-55,000
=-$5000
In this case, the value of SP is -$5,000, which is unfavorable for our project because it is less than 0.
SPI = EV/PV
Thus;
SP1=50,000 ÷55,000
= $0.91
However, the SPI value is less than.
340
Capital
Budgeting
Techniques:
Certainty and Risk
Chapter Across the Disciplines
Why This Chapter Matters To You
Accounting: You need to understand cap-
ital budgeting techniques in order to
develop good estimates of the relevant
cash flows associated with a proposed
capital expenditure and to appreciate how
risk may affect the variability of cash
flows.
Information systems: You need to under-
stand capital budgeting techniques,
including how risk is measured in those
techniques, in order to design decision
modules that help reduce the amount of
work required in analyzing proposed capi-
tal projects.
Management: You need to understand
capital budgeting techniques in order to
understand the decision criteria used to
accept or reject proposed projects; how to
apply capital budgeting techniques when
capital must be rationed; and behavioral
and risk-adjustment approaches for deal-
ing with risk, including international risk.
Marketing: You need to understand capi-
tal budgeting techniques in order to
understand how proposals for new prod-
ucts and expansion of existing product
lines will be evaluated by the firm’s deci-
sion makers and how risk of proposed pro-
jects is treated in capital budgeting.
Operations: You need to understand capi-
tal budgeting techniques in order to
understand how proposals for the acquisi-
tion of new equipment and plants will be
evaluated by the firm’s decision makers,
especially when capital must be rationed.
9
LEARNING GOALS
Calculate, interpret, and evaluate the
payback period.
Apply net present value (NPV) and
internal rate of return (IRR) to relevant
cash flows to choose acceptable
capital expenditures.
Use net present value profiles to
compare the NPV and IRR techniques
in light of conflicting rankings.
Discuss two additional considerations
in capital budgeting—recognizing
real options and choosing projects
under capital rationing.
Recognize sensitivity analysis and
scenario analysis, decision trees, and
simulation as behavioral approaches
for dealing with project risk, and the
unique risks that multinational
companies face.
Understand the calculation and
practical aspects of risk-adjusted
discount rates (RADRs).
LG6
LG5
LG4
LG3
LG2
LG1
CHAPTER 9 Capital Budgeting Techniques: Certainty and Risk 341
Capital Budgeting Techniques
When firms have developed relevant cash flows, as demonstrated in Chapter 8,
they analyze them to assess whether a project is acceptable or to rank projects. A
number of techniques are available for performing such analyses. The preferred
approaches integrate time value procedures, risk and return considerations, and
valuation concepts to select capital expenditures that are consistent with the
firm’s goal of maximizing owners’ wealth. This section and the following one
focus on the use of these techniques in an environment of certainty. Later in the
chapter, we will look at capital budgeting under uncertain circumstances.
We will use one basic problem to .
EM660 PROJECT MANAGEMENT
Class 6
Class 6 Agenda Finish Crashing Case Study 3Chapter 14 Pricing and EstimatingChapter 15 Cost ControlChapter 16 Trade-off Analysis
Chapter 14
Cost Estimating (p. 574)
Cost estimating is derived from prior experience.
Similar work
Professional reference material
Market surveys
Operations and process knowledge
Estimating software & databases
Interviews with subject experts.
Estimating tools can be formalized in manuals.
Types of Estimates
Cost estimates fall into two groups: conceptual
estimates and detailed estimates. Each can be broadly
defined as follows:
Conceptual Estimate
Conceptual estimating or parametric estimating is the process of establishing a project’s cost, often before a drawing of a facility has been developed.
Detailed Estimate
The detailed construction estimate is the product of a process whereby the cost of a proposed construction project is predicted. The estimate is prepared by breaking down the items of work in an orderly and logical basis, determining the cost of each item from experience, and summarizing the total.
Most AccurateEstimates based on quotations
Classes of Estimates (p. 575)
Inputs to EstimatingProject ScopeWBSNetwork DiagramSchedulePricing PolicyCulture & Systems
Once costs have been estimated, it’s time to have a kick-off meeting to further define them.ClassTypesAccuracyIDefinitive+/- 5%IICapital Cost+/- 10 to 15%IIIAppropriation with some Capital Cost+/- 15 to 20%IVAppropriation+/- 20 to 25%VFeasibility+/- 25 to 35%VIOrder of Magnitude> +/- 35%
Types of CostsCosts can either be Variable or Fixed.Variable costs change with the amount of use or consumption (labor & materials).Fixed costs do not change (set-up costs).
Costs can either be Direct or Indirect.Direct costs are directly attributable to the project work.Indirect costs benefit more than one project.
Direct Costs
Costs usually charged directly:Project staff Consultants Project supplies Publications Travel Training
Indirect Costs
Costs usually allocated indirectly:Utilities Rent Audit and legal Administrative staff Equipment rental Petrol Maintenance Generator Security Telephone
Labor and Overhead
Functional managers determine
the labor hours required for each
project task, then calculate the
dollars using the appropriate labor
rates.
Projecting labor rates over projects longer than one year are done with historical averages.
Overhead rates generally remain fairly constant, but management decides how to best distribute the cost.
- New projects may have lower overhead rates so more of their budget is available for R&D.
Materials/Support Costs
(p. 586)
Calculating material costs is time
consuming. A costed bill of
material is prepared for all
vendor purchased parts, including scrap factors and shelf life of perishable products.
A procurement plan is then developed to monitor spending, forecast inventory, and look for variances.
Support costs, such a tra ...
The word contingency has been given a completelynew meanin.docxarnoldmeredith47041
T
he word contingency has been given a completely
new meaning since it was introduced to heavy oil and
gas energy construction industry. Perhaps it is one of
the most confusing concepts in project cost and
schedule management systems. More often than not, the
contingencies are simply hidden in the base estimate, causing
chaotic results [7]. Now, with the historical cost data becoming
illusory, the efforts of benchmarking will be misleading and
meaningless. Lack of structured transparency has led to the
misconception that the contingency fund is a phenomenon of
wide utility as a catch-all to cover project extra costs which
otherwise can not be legitimately accounted for.
J.P. Morgan has been quoted as saying that “the market will
fluctuate” [2]. This claim also applies to project cost forecasts.
Contingency forecasts fluctuate as well, following the project
progress and overall project risk shifts. One of the most effective
ways to avoid the catch-all syndrome is to break down contingency
into risk affected components. The level of detail shall be driven
by a well established work breakdown structure (WBS), which
shall be inherently built into a contingency risk model. When the
contingency amount is derived, it will be automatically dispersed
into appropriate accounts based on the risk levels and cost weigh-
ing factors.
Allocating contingency instead of a single liner provides a
great advantage to the management of the contingency. By using
moderate cost breakdown details, the cost engineer knows exactly
how the contingency model is put together and the amount each
account deserves, and the timing when the amount is exhausted.
Hence, the cost engineer can easily generate a contingency draw-
down plan, and manage the depletion of contingency in a
controlled manner.
PROJECT COST OVERRUN PHENOMENON
Fifteen years after the economic recession of the 1990s—a
result of a world-wide oil price drop, the Oil Sands in northern
Alberta of Canada became a hot spot, attracting numerous
investors from the United States and other parts of the world.
Scarcity of oil and its current high price were the catalysts for a
booming oil and gas construction industry in the province of
Alberta. Between 2005 and 2013, a total amount of 63.5 Billion
Canadian dollars [6] will be invested in the exploration, mining,
crude refining and transportation of bituminous oil sands.
However, the heavy construction in the energy industry has been
plagued with a history of poor performance, budget overrun and
significant schedule delays, according to the Construction
Owner's Association of Alberta (COAA).
Various attempts have been made by the COAA and other
interest groups to improve the reputation of the industry with
little success to date. Perhaps there is no easy way to save the
industry's notoriety for cost overruns. However, one method to
avoid further cost slippage—the implementation of a stringent
risk management process, including adequate cost and schedule
conting.
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Primavera P6 EPPM Portlets Index. This 25-page document will give you a screen shot of each portlet, explain how to populate it with the correct data and configure its options in the customization page.
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Explore the world of the Taurus zodiac sign. Learn about their stability, determination, and appreciation for beauty. Discover how Taureans' grounded nature and hardworking mindset define their unique personality.
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Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
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Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
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Management Reserve Defined
Management Reserve (MR) is defined in EIA 748 Earned Value Management Systems, the
commercial standard for EVMS, as “An amount of the total budget withheld for management
control purposes, rather than being designated for the accomplishment of a specific task or set
of tasks.” In most programs, particularly developmental efforts, there is considerable
uncertainty regarding timing and/or magnitude of future difficulties such as:
• Growth within currently authorized work scope
• Rate changes (overhead, labor, material, currency, etc.)
• Risk - its probability of occurrence and its impact
• Other program unknowns
Consequently, MR is established to provide a source of budget to plan and execute effort
initially excluded from the project plan, which is necessary to overcome these difficulties and
keep the project on track.
Many people incorrectly view MR as funding contingency. In order to better understand MR, the
difference between funding and budget must be well understood. Budget is the estimated cost
for the planned work agreed to by both contractor and customer. Funding is the amount of
money held by the customer to reimburse the contractor’s actual costs and fees or price
(depending on the contract type).
Figure 1 illustrates the classic relationship between budget elements and funding.
Figure 1 Budget/Funding Relationship
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A customer generally requires funds in excess of the contractor’s budget to pay for contract
changes and overruns (if allowed by the contract).
OMB encourages customers (federal agencies) to
establish program risk-adjusted budgets (PRB) to
provide funding and schedule contingencies to
cover the risk of cost and schedule overruns on a
project.
Figure 2 shows how the MR, which is part of the
contractor’s budget, relates to the customer’s
contingencies comprising the program risk
adjusted budget.
In this diagram you can see the difference between the contractor’s CBB and the customer’s
Program Risk Adjusted Budget (PRB), depicted by the shaded area. The PRB includes the
amount of additional funds and time that the customer has available to handle cost and
schedule growth that may occur on the project. As the name implies, it is based on the risks
identified by the customer for the project, which are usually based upon the customer’s history
and experience with similar projects. The horizontal scale, representing time, shows that the
PRB is planned to a date beyond the contract end date. This is the equivalent of schedule
contingency or reserve that may be held by the customer.
The blue line is the total time phased budget or planned value (PV). The total of the entire
planned budget is the Budget at Completion (BAC). Above that, is the contractor’s
Management Reserve (MR). The BAC + MR = the Contract Budget Base (CBB). This is the
total estimated ‘cost’ of the project.
Above that is fee, which when added to the CBB yields the Contract Target Price (CTP), (not
shown).
Upon completion of a contract, some MR often remains. This may be true whether the
contractor’s final actual cost was over or under the contractor’s planned cost at completion or
BAC. Many people find this bothersome due to their confusion over the differences between
budget and funds. Ultimately, the contractor will be paid, from funding allocated to the contract,
for all contractually allowable costs and fee incurred in performance of the project. This may
end up being in excess of the budget (overrun) or less than the budget (under-run) and any
remaining MR is simply a number in a log.
Figure 2 - Budget and Funding Profiles
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Estimating Management Reserve
FAR 31.205-7 (c), defines contingency as a possible future event or condition arising from
presently known or unknown causes, the outcome of which is indeterminable at the present time
and indicates that costs for contingencies are generally not allowable. Those which are
foreseeable within reasonable limits of accuracy, e.g., anticipated costs of rejects and defective
work may be included in the estimates of future cost so as to provide the best estimate of
performance cost.
In contrast, Management Reserve (MR) is not foreseeable and should not be included in the
PMB. The challenge then is how to estimate the cost impact of risks, which are uncertain future
events, in the proposal cost estimate, so that sufficient budget is available to plan the know work
and set aside management reserves.
The EIA 748 standard says “MR is not a contingency that can’t be eliminated from prices during
subsequent negotiations or used to absorb the cost of program changes. The budget being
held in reserve must not be viewed by a customer as source of funding for added work scope.”
(Unfortunately, this rule is often violated).
This conflict has perpetuated the mindset that MR should be “buried” within allowable cost
elements proposed on a project, so that once the contract is negotiated, the contractor then sets
aside an amount from the CBB for MR.
In the past, contractors would hold back a percentage (e.g., 10%) from the total negotiated
budget to establish MR and distribute the remainder to the Control Accounts. This is no longer
considered a best practice. These days, risk management is well-integrated with both cost
estimating and earned value management. Proposal costs are estimated by assessing and
quantifying potential risks and opportunities, developing risk and opportunity handling plans, and
including the cost of those handing plans in the proposal estimate. Through Monte Carlo and
other risk analysis techniques, proposal estimates with specific confidence levels can be
developed and proposed based upon a contractor’s risk appetite.
Upon contract award, the risk assessment is updated, and budgets are allocated to control
account plans based on the risk inherent in the control accounts’ work scope. Overall budget
allocation is typically made at a more challenging level of confidence than the proposal cost
estimate, allowing the extra budget for the establishment of management reserve. The
allocation of budget to individual control accounts is risk-based, with more budget allocated to
high-risk project elements; less budget allocated to lower-risk elements.
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The majority of the MR
established should be directly
related to overall project risk. In
addition, MR should be provided
for other unknowns, which will
arise during the project.
One process for assessing and quantifying risk and opportunities and using this information to
establish management reserve is as follows:
1. During the proposal stage, perform a risk analysis. Quantify the probability of
occurrence and the consequences of identified risk events. Identify risk/opportunity
handling plans to mitigate or eliminate risk and capture opportunities. Include the cost of
risk/opportunity handling plans in the proposal cost estimate. For risks that will be
accepted, include the cost of their consequences. Perform additional analysis to
determine the level of confidence in the cost estimate. Determine the confidence level
required for the acquisition based on management’s risk tolerance. For instance, you
may decide to bid a high-risk project with a cost estimate having an 80% confidence
level in order to ensure project success.
2. When the contract is awarded, budget the Control Accounts at a lower overall
confidence level, i.e., selectively issue target budgets lower than the high-confidence
estimate, to the control accounts based on their inherent risk, and retain the remaining
budget in MR.
a. For example; if a task will cost $110,000 with an 80% probability of success; and
b. The Control Account may be budgeted at $100,000 (based on a 50% probability
of success)
c. The remaining $10,000 is maintained in MR
3. Some of the allocated control account budgets should be used to plan risk/opportunity
handling activities. Generally, not all risk/opportunity handling activities are included in
the PMB; usually the handling activities for risks with a high probability of occurrence
and consequences will be initially planned. The remainder of the risks/opportunities will
be carefully monitored. When it becomes obvious that they are elevating in probability
or impact, MR can be issued to prospectively plan risk-handling activities. Therefore,
MR initially set aside should be carefully reviewed to determine if it is sufficient to handle
risks and opportunities not included in the initial PMB. In addition, some amount of MR
is also required for unknown unknowns that typically occur on any project and must be
based on management judgment, the type work, and past experience with this type of
project.
Figure 2 - Management Reserve Components
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4. In the past contractors would just hold back a percentage (10%) from the negotiated
budget for MR and distribute the remainder to the Control Accounts. That is not a best
practice.
Then there is the issue with a “per-award IBR”. An IBR (Integrated Baseline Review) is
designed to provide a meeting that would assure both the client and contractor have a common
understanding of the scope of work and the risks involved. This has typically been done after
contract award but it is being used more often for follow on contracts and when the bidders list
is narrowed to 2 or 3 contractors. If the IBR is pre-award, then the MR cannot be shown. But
the risks used to establish the MR are part of the review. There is a potential conflict depending
on the experience of the review team.
Once the contract is underway, management reserve can be replenished in two ways.
1. Via changes to the contract
2. Via prospective replanning, to remove budget that will no longer be required due to the
result of opportunity realization.
Planning for contract changes is done exactly the same way as planning the initial PMB. An
amount of the contract target cost is set aside in MR based on the risk inherent in the added
contract scope. Every time you estimate a change that has risks associated with the new work
scope, you should perform a risk analysis, evaluate the cost of the risk and when approved,
withhold the risk amount for MR. It is just as valid for a change, as it is for the original project
planning.
The realization of opportunities, which are identified in the initial risk/opportunity assessment,
and subsequently managed proactively in order to realize them, often results in the elimination
of future work that had been planned in the PMB. Budget for this work, which will no longer be
required, can be transferred back to MR when the work/planning package containing it is
replanned.
The amount of MR needed for a project depends entirely upon the amount of risk it entails.
However, data are available to help a PM determine how much is typically required on several
types of projects. These data can be used as a benchmark. One of the questions often asked
is; “How much MR should I have?” That is an impossible question to answer in general, but
here is some background.
Management Reserve Study
There was one study done on Industry Averages for MR that was published in the Acquisition
Quarterly Review - Summer 2000 by; David Christiansen and Carl Templin. They reviewed data
from the Defense Acquisition Executive Summary (DAES) for the period 1975-1998. This study
included over 500 completed and ongoing contracts. The DAES reports reflect summarization
of information from contractor Contract Performance Reports (CPRs).
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In that report they charted the median percentage of MR by contract category and by acquisition
phase. Here are the charts. Figure 2 shows the median percent of MR by contract category
and Figure 3 shows the median percentage of MR by acquisition phase.
These are median numbers, not averages. That means there are an equal number of data
points above the median as there are below it. The range for the MR percentage was 2.2% to
6.1% where:
MR% = MR budget / Total allocated budget
Notice that for fixed price contracts the percentage is higher. Hopefully that is obvious, as the
risk is all on the contractor so the contractor would plan additional MR.
The MR percentage is higher for development contracts than for production contracts. That
seems obvious also, as there are a lot more risks in development work than in a production
project.
There are a few considerations in establishing and maintaining the MR;
1. Once a contract is awarded, refine / reassess mitigation measure(s) included for each
risk event. Things may have changed since you proposed the contract which will affect
future decisions
a. Reduce / transfer value of high cost risk to MR if mitigation effort was successful
2. Reevaluate risks and associated MR throughout execution of the contract
a. Risks change. When risks are retired, the associated MR is either formally
transferred to other risks or retained as “non-specific”
3. MR allocated during execution of contract should be directly tied to amount associated
with each identified risk
0
0.5
1
1.5
2
2.5
3
3.5
1 2 3 4
% MR
Quarter of Contract Life
Fixed-Price
Cost-Reimb.
Figure 4 – Median % MR
by Contract Category
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1 2 3 4
% MR
Quarter of Contract Life
Development
Production
Figure 5 – Median % MR
by Acquisition Phase
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4. MR allocations are part of the change control system. They are internal changes but
require that a change request is issued and the project manager authorizes the change
to the CA(s).
Using Management Reserve
Now we have defined what it is and discussed how it is estimated. Now we need to address
how it is used. The easy response; “it is to plan for new work scope that has not been planned
in the PMB, and is not out of scope to the contract”.
Once you know how much MR that is available, how do you identify and report it?
MR is reported on the Contract Performance Report (CPR) as a lump sum on formats 1 & 2. All
uses of the MR would be seen in the baseline change in CPR/IPMR Format 3 and the
description of the uses would be explained in Format 5. MR usage should be maintained in an
MR Log (or CBB Change Log) that tracks all of the additions to and uses of, MR. This log and
process should be identified in your change control procedures.
The MR log is an internal document but is the basis for changes to the baseline reported on
CPR/IPMR format 3. If you are audited, this is your backup. Inside the log is a cross reference
to the risk log that can support the estimate for all MR in the log.
For an EVM approach to be effective, all work must be planned with a budget. MR allows you
to make sure that this rule is followed. But it is still required to be formally authorized, planned
and tracked in the log.
Here are 2 examples of cases, which require MR;
Example #1 – as part of the development plan, an initial build of a prototype unit was to be
shipped to another facility for testing. While in shipment, the unit sustained $300,000 worth of
damage. The unit will have to be rebuilt and the entire schedule now has to be changed.
Tracking this in-scope change requires that the new work be planned and scheduled.
The budget for the rebuild needs to be planned in the appropriate Control Accounts so the
rebuild progress can be measured, like any other work in the project. It is not a contract
change; you cannot go to the customer for additional budget. This is where MR is used. This
assumes no one identified the accident as a risk, so this change was budgeted from the non-
specific portion of the MR.
Example #2 – the source code development testing and correcting cycle was estimated to
require three repetitions for a 60% probability of success, but could require up to six cycles. If
each of these cycles takes a month and $100,000, each repetition will have a significant impact
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on the project and needs to be tracked. At the end of three cycles, the code was still not error
free enough to pass testing and it was determined that it would take 2 more cycles.
The contract said “test to X standard”, not how many times to test and fix; so it will not be a
contract change. Each additional cycle that is required to meet the technical specifications for
delivery will need to be planned in all the control accounts affected and the budget will come
from MR. Since this was probably identified as a risk to the code development, this MR should
come from the portion estimated for code development risk.
In addition to the types of changes addressed in the two examples above, there are times when
all Control Accounts are affected by an unexpected change. For instance, the labor union won
a 10% pay increase over the amount planned. This means that every production Control
Account is likely to incur a 10% cost variance. If the variance reporting threshold is 10%, every
CAM is likely to have to provide a variance analysis based on something that they had no
control over. In this case, the PM may choose to allocate MR to all affected CA’s to negate the
issue. This “replanning” will have to follow change procedures but is within the purview of the
PM.
Mark Infanti
EVM Subject Matter Expert